What Rajat Gupta’s Conviction Means for India

In this courtroom drawing, former Goldman Sachs and Procter & Gamble board member Rajat Gupta, center, listened to the jury verdict in his insider trading trial.

To many observers, Rajat Gupta’s life story is as good as the “American Dream” gets. A native of Kolkata who was orphaned at a young age, he went on to become the head of the world’s most influential management consulting firm and one of the most-respected corporate advisers in the U.S.

But his story took a dramatic turn on Friday, when a U.S. court found him guilty of insider trading.

The evidence against Mr. Gupta, a former director at Goldman Sachs Group Inc. and Procter & Gamble Co., was largely circumstantial, pointing to confidential information he allegedly leaked to Sri Lankan hedge-fund titan Raj Rajaratnam, a close friend and business associate.

The jury found that he was “motivated not by quick profits but rather a lifestyle where inside tips are the currency of friendships and elite business relationships,” The Wall Street Journal reported.

The key words here are “friendships” and “business.” For many in India, it’s normal for the two to come together.

“In India, many of us are bemused by the accusations and the conviction. A man goes to jail because he shared information with a friend? By that yardstick, half of India would be in jail,” writes Anant Rangaswami in Firstpost.

“Knowing people in power and to benefit from the knowledge and contacts that they possess is the ladder to success that Indians have recognised centuries ago,” he argues, explaining that taking advantage of contacts is how business is often done here.

While helping friends is not necessarily a crime, insider trading is. Some saw the conviction as a chance to zoom in on trading practices in India.

“Rajat Gupta’s conviction for insider trading may have reinforced the strictness of US laws, but back home ask any broker, dealer, analyst, securities lawyer or even someone in the stock market regulator—and everyone will accept that it is not only rampant on Dalal Street but also interlinked with stock trading,” said a Times of India article headlined “Insider trading still flourishes on Dalal Street.” Citing unnamed sources, the article said the practice is common and enforcement against it ineffectual.

A similar argument was made in an editorial published in the Financial Express, which argued the Securities and Exchange Board of India, the country’s markets regulator, is ill-equipped to deal with the problem.

“There is little to suggest SEBI is being armed to tackle a crime that most believe is rampant in the Indian stock exchanges,” the story said.

But not all agree that the current systems in place are inadequate. Sandeep Parekh, a former head of the legal and enforcement divisions at SEBI, believes that while insider trading still happens, it’s not rampant and when it does occur it is behind closed doors. “It’s difficult to get direct evidence,” he said.

“I don’t think there is a culture of insider trading – 15 years ago I wouldn’t have said that but today people are aware it is a crime,” Mr. Parekh, who now practices at a securities law firm, said in an interview. Although SEBI cannot wiretap phones, he pointed at its improved surveillance systems, which include tools to monitor transactions electronically.

Before Friday’s conviction, India’s business elite had spoken in support of Mr. Gupta.

“I have known Rajat now for over 20 years. In every conversation I have had with him over the years, he was always talking about the things he wanted to do for India, for others, and never about himself,” Mukesh Ambani, the chairman of Reliance Industries Ltd. and India’s richest man wrote in a post published on a Web site called “Friends of Rajat Gupta.”

“I respect Rajat for his selfless dedication and humility and he will always be a friend of mine,” he added.

He was one of several Indian business leaders and public figures, including Deepak Chopra and Adi Godrej, who signed an open letter supporting Mr. Gupta’s claim of innocence.

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